Confidence Erodes Among Small Businesses

The National Federation of Independent Business (NFIB) is out with its August survey and it makes for pretty dismal reading. Here is there summary:

The Index of Small Business Optimism lost 0.9 points in July following a sharp decline in June. The persistence of Index readings below 90 is unprecedented in survey history. The performance of the economy is mediocre at best, given the extent of the decline over the past two years. Pent up demand should be immense but it is not triggering a rapid pickup
in economic activity. Ninety (90) percent of the decline this month resulted from deterioration in the outlook for business conditions in the next six months. Owners have no confidence that economic policies will “fix” the economy.
You don’t need to be reminded that this is the backbone of the economy and meaningful recovery — think jobs — will not occur until small business is expanding, and this report shows clearly that is not an event to be soon expected. Two things emerge from the report as being particularly crippling to any rebound. One is a lack of demand or more precisely sales and the other is confidence. Customers are not buying and small business people are not comfortable enough with the future to engage in any sort of expansion.
The report’s summary makes for interesting reading. This is there bottom line take on the current situation:
Bottom line, owners remain pessimistic and nothing is happening in Washington to provide encouragement. Confidence is lost. At least the “real variables” (hiring, capital spending and inventory investment) did not deteriorate substantially in July. The damage to the Optimism Index was
done by expectations for business conditions for the second half – owners predict that the economy will not improve appreciably, at least on Main Street. Big banks and big manufacturers may be doing well, but the small firms are not. If this doesn’t change soon, the success of the large firms will be imperiled as well.
To be fair, it bears repeating that demand is still the biggest problem facing small businesses. This is borne out by the NFIB’s statistics in the report:
nfib single biggest problem 2010-07.PNG
I suspect that a good uptick in sales would do wonders for the confidence of small business and most likely lead to different survey results. Nevertheless, the uneasiness over Washington policies is real and probably not entirely unwarranted. It’s worth noting that credit and its availability is not an issue, so discount the rants from the political class that hold all would be well if the banks would only lend. There aren’t any takers for their money.
Maybe the November elections will clear the smoke away and perhaps sales will come back to save the day. What is pretty clear at this juncture is that government efforts, heroic though they may have been, have failed rather dramatically to get this vital part of the economy off of its back.
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